Why Japan May Raise Rates
Even if Prices Fall

By

Yuka Hayashi

Updated April 30, 2007 12:01 a.m. ET

TOKYO -- Faced with the rare combination of an expanding economy and weak consumer prices, the Bank of Japan may consider a highly unusual monetary-policy step later this year: boosting interest rates even if prices are actually falling.

A central bank normally raises interest rates to prevent overheating of the economy or to rein in inflation. When it cuts rates, its aim is to stimulate spending by companies and individuals to boost...